Test bank and solution manual of essentials of corporate finance 9e ross (2)

1 Net working capital is defined as: A B C D E the depreciated book value of a firm's fixed assets the value of a firm's current assets available cash minus current liabilities total assets minus total liabilities current assets minus current liabilities Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Net working capital The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the: A B C D E statement of cash flows income statement GAAP statement balance sheet net working capital schedule Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement The financial statement that summarizes a firm's accounting value as of a particular date is called the: A B C D E income statement cash flow statement liquidity position balance sheet periodic operating statement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Balance sheet Which one of the following decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year? A B C D E Indirect cost Direct cost Noncash item Period cost Variable cost Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Noncash items Which one of the following terms is defined as the total tax paid divided by the total taxable income? A B C D E Average tax rate Variable tax rate Marginal tax rate Absolute tax rate Contingent tax rate Accessibility: Keyboard Navigation Blooms: Remember 02-1 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Difficulty: Basic Learning Objective: 02-03 Explain the difference between average and marginal tax rates Section: 2.3 Taxes Topic: Taxes The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the: A B C D E average tax rate variable tax rate marginal tax rate fixed tax rate ordinary tax rate Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-03 Explain the difference between average and marginal tax rates Section: 2.3 Taxes Topic: Taxes Cash flow from assets is defined as: A B C D E the cash flow to shareholders minus the cash flow to creditors operating cash flow plus the cash flow to creditors plus the cash flow to shareholders operating cash flow minus the change in net working capital minus net capital spending operating cash flow plus net capital spending plus the change in net working capital cash flow to shareholders minus net capital spending plus the change in net working capital Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow from assets Operating cash flow is defined as: A B C D E a firm's net profit over a specified period of time the cash that a firm generates from its normal business activities a firm's operating margin the change in the net working capital over a stated period of time the cash that is generated and added to retained earnings Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Operating cash flow Which one of the following has nearly the same meaning as free cash flow? A B C D E Net income Cash flow from assets Operating cash flow Cash flow to shareholders Addition to retained earnings Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Free cash flow 10 Cash flow to creditors is defined as: A interest paid minus net new borrowing B interest paid plus net new borrowing C operating cash flow minus net capital spending minus the change in net working capital 02-2 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education D dividends paid plus net new borrowing E cash flow from assets plus net new equity Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow to creditors 11 Cash flow to stockholders is defined as: A B C D E cash flow from assets plus cash flow to creditors operating cash flow minus cash flow to creditors dividends paid plus the change in retained earnings dividends paid minus net new equity raised net income minus the addition to retained earnings Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow to stockholders 12 Which one of the following is an intangible fixed asset? A B C D E Inventory Machinery Copyright Account receivable Building Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Balance sheet 13 Production equipment is classified as: A B C D E a net working capital item a current liability a current asset a tangible fixed asset an intangible fixed asset Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Balance sheet 14 Net working capital includes:  A B C D E a land purchase an invoice from a supplier non-cash expenses fixed asset depreciation the balance due on a 15-year mortgage Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Net working capital 15 Over the past year, a firm decreased its current assets and increased its current liabilities As a result, the firm's net working capital: 02-3 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education A B C D E had to increase had to decrease remained constant could have either increased, decreased, or remained constant was unaffected as the changes occurred in the firm's current accounts Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Net working capital 16 Net working capital increases when:  A B C D E fixed assets are purchased for cash inventory is purchased on credit inventory is sold at cost a credit customer pays for his or her purchase inventory is sold at a profit Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Net working capital 17 Shareholders' equity is equal to: A B C D E total assets plus total liabilities net fixed assets minus total liabilities net fixed assets minus long-term debt plus net working capital net working capital plus total assets total assets minus net working capital Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Balance sheet 18 Paid-in surplus is classified as: A B C D E owners’ equity net working capital a current asset a cash expense long-term debt Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Balance sheet 19 Shareholders’ equity is best defined as: A B C D E the residual value of a firm positive net working capital the net liquidity of a firm cash inflows minus cash outflows the cumulative profits of a firm over time Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Balance sheet 02-4 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 20 All else held constant, the book value of owners’ equity will decrease when: A B C D E the market value of inventory increases dividends exceed net income for a period cash is used to pay an accounts payable a long-term debt is repaid taxable income increases Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Balance sheet 21 Net working capital decreases when: A B C D E a new 3-year loan is obtained with the proceeds used to purchase inventory a credit customer pays his or her bill in full depreciation increases a long-term debt is used to finance a fixed asset purchase a dividend is paid to current shareholders Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Net working capital 22 A firm’s liquidity level decreases when: A B C D E inventory is purchased with cash inventory is sold on credit inventory is sold for cash an account receivable is collected proceeds from a long-term loan are received Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Liquidity 23 Highly liquid assets: A B C D E increase the probability a firm will face financial distress appear on the right side of a balance sheet generally produce a high rate of return can be sold quickly at close to full value include all intangible assets Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Liquidity 24 Financial leverage: A B C D E increases as the net working capital increases is equal to the market value of a firm divided by the firm's book value is inversely related to the level of debt is the ratio of a firm's revenues to its fixed expenses increases the potential return to the stockholders Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate 02-5 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Capital structure 25 The market value: A of accounts receivable is generally higher than the book value of those receivables B of an asset tends to provide a better guide to the actual worth of that asset than does the book value C of fixed assets will always exceed the book value of those assets D of an asset is reflected in the balance sheet E of an asset is lowered each year by the amount of depreciation expensed for that asset Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Market and book values 26 Which one of the following is included in the market value of a firm but not in the book value? A B C D E Raw materials Partially built inventory Long-term debt Reputation of the firm Value of a partially depreciated machine Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Market and book values 27 The market value of a firm's fixed assets: A B C D E will always exceed the book value of those assets is more predictable than the book value of those assets in addition to the firm's net working capital reflects the true value of a firm is decreased annually by the depreciation expense is equal to the estimated current cash value of those assets Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Market and book values 28 Market values: A B C D E reflect expected selling prices given the current economic situation are affected by the accounting methods selected are equal to the initial cost minus the depreciation to date either remain constant or increase over time are equal to the greater of the initial cost or the current expected sales value Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Market and book values 29 Which one of the following statements concerning the balance sheet is correct? A B C D Total assets equal total liabilities minus total equity Net working capital is equal total assets minus total liabilities Assets are listed in descending order of liquidity Current assets are equal to total assets minus net working capital 02-6 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education E Shareholders' equity is equal to net working capital minus net fixed assets plus long-term debt Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Balance sheet 30 An income statement prepared according to GAAP: A B C D E reflects the net cash flows of a firm over a stated period of time reflects the financial position of a firm as of a particular date distinguishes variable costs from fixed costs records revenue when payment for a sale is received records expenses based on the matching principle Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement 31 Net income increases when: A B C D E fixed costs increase depreciation increases the average tax rate increases revenue increases dividends cease Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Intermediate Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement 32 Based on the recognition principle, revenue is recorded on the financial statements when the: I payment is collected for the sale of a good or service.  II earnings process is virtually complete.  III value of a sale can be reliably determined.  IV product is physically delivered to the buyer A B C D E I and II only I and IV only II and III only II and IV only I and III only Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Generally Accepted Accounting Principles (GAAP) 33 Given a profitable firm, depreciation: A B C D E increases net income increases net fixed assets decreases net working capital lowers taxes has no effect on net income Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement 02-7 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 34 The recognition principle states that: A costs should be recorded on the income statement whenever those costs can be reliably determined B costs should be recorded when paid C the costs of producing an item should be recorded when the sale of that item is recorded as revenue D sales should be recorded when the payment for that sale is received E sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Generally Accepted Accounting Principles (GAAP) 35 The matching principle states that: A costs should be recorded on the income statement whenever those costs can be reliably determined B costs should be recorded when paid C the costs of producing an item should be recorded when the sale of that item is recorded as revenue D sales should be recorded when the payment for that sale is received E sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Generally Accepted Accounting Principles (GAAP) 36 Which one of these is correct? A B C D E Depreciation has no effect on taxes Interest paid is a noncash item Taxable income must be a positive value Net income is distributed either to dividends or retained earnings Taxable income equals net income × (1 + Average tax rate Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement 37 Firms that compile financial statements according to GAAP: A B C D E record income and expenses at the time they affect the firm's cash flows have no discretion over the timing of recording either revenue or expense items must record all expenses when incurred can still manipulate their earnings to some degree record both income and expenses as soon as the amount for each can be ascertained Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Generally Accepted Accounting Principles (GAAP) 38 The concept of marginal taxation is best exemplified by which one of the following? A Kirby's paid $120,000 in taxes while its primary competitor paid only $80,000 in taxes 02-8 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education B Johnson's Retreat paid only $45,000 on total revenue of $570,000 last year C Mitchell's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes D Burlington Centre paid no taxes last year due to carryforward losses E The Blue Moon paid $2.20 in taxes for every $10 of revenue last year Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-03 Explain the difference between average and marginal tax rates Section: 2.3 Taxes Topic: Taxes 39 The corporate tax structure in the U.S is based on a: A B C D E maximum tax rate of 38 percent minimum tax rate of 10 percent flat rate of 34 percent for the highest income earners flat-rate tax modified flat-rate tax Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-03 Explain the difference between average and marginal tax rates Section: 2.3 Taxes Topic: Taxes 40 Which one of the following will increase the cash flow from assets for a tax-paying firm, all else constant? A B C D E An increase in net capital spending A decrease in the cash flow to creditors An increase in depreciation An increase in the change in net working capital A decrease in dividends paid Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow from assets 41 A negative cash flow to stockholders indicates a firm: A B C D E had a net loss for the year had a positive cash flow to creditors paid dividends that exceeded the amount of the net new equity repurchased more shares than it sold received more from selling stock than it paid out to shareholders Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow to stockholders 42 If a firm has a negative cash flow from assets every year for several years, the firm: A B C D E may be continually increasing in size must also have a negative cash flow from operations each year is operating at a high level of efficiency is repaying debt every year has annual net losses Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow from assets 02-9 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 43 An increase in which one of the following will increase operating cash flow for a profitable, tax-paying firm? A B C D E Fixed expenses Marginal tax rate Net capital spending Inventory Depreciation Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Operating cash flow 44 Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend The cash flow statement for last year must have which one of the following assuming that no new shares were issued? A B C D E Positive operating cash flow Negative cash flow from assets Positive net income Negative operating cash flow Positive cash flow to stockholders Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow to stockholders 45 Net capital spending is equal to: A B C D E ending net fixed assets minus beginning net fixed assets plus depreciation beginning net fixed assets minus ending net fixed assets plus depreciation ending net fixed assets minus beginning net fixed assets minus depreciation ending total assets minus beginning total assets plus depreciation ending total assets minus beginning total assets minus depreciation Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Capital spending 46 What is the maximum average tax rate for corporations? A B C D E 38 percent 25 percent 33 percent 39 percent 35 percent Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 02-03 Explain the difference between average and marginal tax rates Section: 2.3 Taxes Topic: Taxes 47 Which one of the following changes during a year will increase cash flow from assets but not affect the operating cash flow? A Increase in depreciation B Increase in accounts receivable C Increase in accounts payable 02-10 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education E $106,300 Owners' equity = $29,800 + 64,800 -23,000 = $71,600 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Balance sheet 66 Pier Imports has cash of $41,100 and accounts receivable of $54,200, all of which is expected to be collected The inventory cost $82,300 and can be sold today for $116,500 The fixed assets were purchased at a total cost of $234,500 of which $118,900 has been depreciated The fixed assets can be sold today for $138,000 What is the total book value of the firm's assets? A B C D E $327,800 $293,200 $346,800 $412,100 $415,600 Total book value = $41,100 + 54,200 + 82,300 + 234,500 -118,900 = $293,200 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Market and book values 67 Lester's Fried Chick'n purchased its building 11 years ago at a cost of $189,000 The building is currently valued at $209,000 The firm has other fixed assets that cost $56,000 and are currently valued at $32,000 To date, the firm has recorded a total of $49,000 in depreciation on the various assets it currently owns Current liabilities are $36,600 and net working capital is $18,400 What is the total book value of the firm's assets? A B C D E $251,000 $241,000 $232,600 $214,400 $379,000 Book value = $189,000 + 56,000 -49,000 + 18,400 + 36,600 = $251,000 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Market and book values 68 Lew’s Auto Repair has cash of $18,600, accounts receivable of $34,500, accounts payable of $28,900, inventory of $97,800, long-term debt of $142,000, and net fixed assets of $363,800 The firm estimates that if it wanted to cease operations today it could sell the inventory for $85,000 and the fixed assets for $349,000 The firm could collect 100 percent of its receivables as they are secured What is the market value of the firm’s assets? A B C D E $332,800 $458,200 $374,200 $495,500 $487,100 Market value = $18,600 + 34,500 + 85,000 + 349,000 = $487,100 AACSB: Analytical Thinking 02-16 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Market and book values 69 Marcie’s has sales of $179,600,depreciation of $14,900, costs of goods sold of $138,200, and other costs of $28,400 The tax rate is 35 percent What is the net income? A B C D E -$1,235 $382 $1,204 $14,660 $13,665 Net income = ($179,600 -138,200 -28,400 -14,900)(1 -.35) = -$1,235 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement 70 AV Sales has net revenue of $513,000 and costs of $406,800 The depreciation expense is $43,800,interest paid is $11,200, and dividends for the year are$4,500 The tax rate is 33 percent What is the addition to retained earnings? A B C D E $38,804 $34,304 $28,120 $29,804 $30,450 Addition to retained earnings = [($513,000 -406,800-43,800 -11,200)(1 -.33)] - $4,500 = Addition to retained earnings = $29,804 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement 71 Last year, The Pizza Joint added $6,230 to retained earnings from sales of $104,650 The company had costs of $87,300, dividends of $2,500, and interest paid of $1,620 Given a tax rate of 34 percent, what was the amount of the depreciation expense? A B C D E $2,407 $1,908 $2,503 $3,102 $3,414 Earnings before interest and taxes = [($6,230 + 2,500)/(1 -.34)] + $1,620 = $14,847 Depreciation = $104,650-87,300-14,847 = $2,503 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement 72 Holly Farms has sales of $509,600, costs of $448,150, depreciation expense of $36,100, and interest paid of $12,400 The tax rate is 28 percent How much net income did the firm earn for the period? 02-17 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education A B C D E $7,778 $9,324 $10,380 $8,671 $5,886 Net income = ($509,600 -448,150 -36,100 -12,400)(1 -.28) = $9,324 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement 73 For the year, Movers United has net income of $31,800, net new equity of $7,500, and an addition to retained earnings of $24,200 What is the amount of the dividends paid? A B C D E $100 $7,500 $7,600 $15,100 $16,700 Dividends paid = $31,800 -24,200 = $7,600 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement 74 MNM & Co incurred depreciation expenses of $36,810 last year The sales were $903,480 and the addition to retained earnings was $11,530 The firm paid interest of $7,711 and dividends of $7,500 The tax rate was 33 percent What was the amount of the costs incurred by the company? A B C D E $822,845 $689,407 $742,306 $830,556 $780,400 Earnings before interest and taxes = [($7,500 + 11,530)/(1 -.33)] + $7,711 = $36,114 Costs = $903,480-36,810-36,114 = $830,556 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement 75 For the year, Uptowne Furniture had sales of $818,790, costs of $748,330, and interest paid of $24,450 The depreciation expense was $56,100 and the tax rate was 34 percent At the beginning of the year, the firm had retained earnings of $172,270 and common stock of $260,000 At the end of the year, retained earnings was $158,713 and common stock was $280,000 Any tax losses can be used What is the amount of the dividends paid for the year? A B C D E $5,266 $6,466 $7,566 $7,066 $6,898 02-18 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Net income = [($818,790 -748,330-56,100 -24,450)(1 -.34)] =-$6,659 Dividends paid = -$6,659 - ($158,713-172,270) = $6,898 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement 76 Neiger Flours owes $16,929 in taxes on taxable income of $61,509 If the firm earns $100 more in income, it will owe an additional $48 in taxes What is the average tax rate on income of $61,609? A B C D E 28.00 percent 30.33 percent 33.33 percent 35.00 percent 27.56 percent Average tax rate = ($16,929 + 48)/$61,609 = 2756, or 27.56 percent AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-03 Explain the difference between average and marginal tax rates Section: 2.3 Taxes Topic: Taxes 77 Rusty Antiques has a marginal tax rate of 39percent and an average tax rate of 26.9 percent If the firm owes $37,265 in taxes, how much taxable income did it earn? A B C D E $137,098 $136,800 $138,532 $139,957 $137,750 Tax = $37,265 / 269 = $138,532 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-03 Explain the difference between average and marginal tax rates Section: 2.3 Taxes Topic: Taxes 78 Red’s Tractors owes $52,311 in taxes on a taxable income of $608,606 The company has determined that it will owe $56,211 in tax if its taxable income rises to $620,424 What is the marginal tax rate at this level of income? A B C D E 39 percent 38 percent 35 percent 34 percent 33 percent Marginal tax rate = ($56,211 -52,311)/($620,424-608,606) = 33, or 33 percent AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-03 Explain the difference between average and marginal tax rates Section: 2.3 Taxes Topic: Taxes 79 Use the following tax table to answer this question; 02-19 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education BT Trucking has taxable income of $617,429 How much does it owe in taxes? A B C D E $96,025.86 $240,797.31 $118,542.79 $209,925.86 $201,354.82 Total tax = 15($50,000) + 25($25,000) + 34($25,000) + 39($235,000) + 34($617,429-335,000) = $209,925.86 Because the marginal and average tax rates are the same at this level of income, the tax can also be computed as Total tax = 34($617,429) = $209,925.86 AACSB: Analytical Thinking Blooms: Analyze Difficulty: Basic Learning Objective: 02-03 Explain the difference between average and marginal tax rates Section: 2.3 Taxes Topic: Taxes 80 Use the following tax table to answer this question: Comfy Inn earned $218,310 in taxable income for the year How much tax does the company owe? A B C D E $86,311.20 $85,140.90 $68,390.90 $69,998.20 $65,240.10 Total tax = 15($50,000) + 25($25,000) + 34($25,000) + 39($218,310-100,000 Total tax = $68,390.90 AACSB: Analytical Thinking Blooms: Analyze Difficulty: Basic Learning Objective: 02-03 Explain the difference between average and marginal tax rates Section: 2.3 Taxes Topic: Taxes 81 The Plaza Cafe has an operating cash flow of $83,770, depreciation expense of $43,514, and taxes paid of $21,590 A partial listing of its balance sheet accounts is as follows: 02-20 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education What is the amount of the cash flow from assets? A B C D E $26,359 $47,949 $61,487 $43,909 $35,953 Cash flow from assets = $83,770- ($597,913-599,608 + 43,514) - [($129,204-139,827) - ($138,590143,215)] = $47,949 AACSB: Analytical Thinking Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow from assets 82 National Importers paid $38,600 in dividends and $24,615 in interest over the past year while net working capital increased from $15,506 to $17,411 The company purchased $38,700 in net new fixed assets and had depreciation expenses of $14,784 During the year, the firm issued $20,000 in net new equity and paid off $23,800 in long-term debt What is the amount of the cash flow from assets? A B C D E $21,811 $41,194 $36,189 $26,410 $67,015 Cash flow from assets = ($24,615 + 23,800) + ($38,600-20,000) = $67,015; AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow from assets 83 The Pretzel Factory has net sales of $821,300 and costs of $698,500 The depreciation expense is $28,400 and the interest paid is $8,400 What is the amount of the firm's operating cash flow if the tax rate is 34 percent? A B C D E $87,620 $89,540 $91,220 $93,560 $95,240 EBIT = $821,300 -698,500 -28,400 = $94,400 Tax = ($94,400 -8,400×34 = $29,240 OCF = $94,400 + 28,400 -29,240 = $93,560 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Operating cash flow 84 Outdoor Sports paid $12,500 in dividends and $9,310 in interest over the past year Sales totaled $361,820 with costs of $267,940 The depreciation expense was $16,500 and the tax rate was35 percent What was the amount of the operating cash flow? A $64,232 B $65,306 02-21 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education C $57,556 D $70,056 E $70,568 EBIT = $361,820-267,940-16,500 = $77,380 Tax = ($77,380-9,310) ×.35 = $23,824.50 OCF = $77,380 + 16,500 -23,824.50 = $70,056 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Operating cash flow 85 The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending net fixed assets of $371,920 The depreciation expense for the year is $46,080 and the interest expense is $11,460 What is the amount of the net capital spending? A B C D E -$22,360 -$4,780 $23,720 $58,340 $69,800 Net capital spending = $371,920 -348,200 + 46,080 = $69,800 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Capital spending 86 The financial statements of Blue Fin Marina reflect depreciation expenses of $41,600 and interest expenses of $27,900 for the year The current assets increased by $31,800 and the net fixed assets increased by $28,600 What is the amount of the net capital spending for the year? A B C D E $13,000 $21,600 $28,600 $60,400 $70,200 Net capital spending = $28,600 + 41,600 = $70,200 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Capital spending 87 Andre's Dog House had current assets of $67,200 and current liabilities of $71,100 last year This year, the current assets are $82,600 and the current liabilities are $85,100 The depreciation expense for the past year is $9,600 and the interest paid is $8,700 What is the amount of the change in net working capital? A B C D E -$2,800 -$1,400 $1,400 $2,100 $2,800 Change in net working capital = ($82,600 -85,100) - ($67,200 -71,100) = $1,400 AACSB: Analytical Thinking 02-22 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Change in net working capital 88 The balance sheet of Binger, Inc has the following balances; What is the amount of the change in net working capital? A B C D E -$1,800 -$7,400 $1,800 -$8,100 $8,100 Change in net working capital = ($32,800 + 51,600 + 129,200-53,600) - ($30,300 + 48,200 + 126,500 43,200) = -$1,800 AACSB: Analytical Thinking Blooms: Analyze Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Change in net working capital 89 During the past year, Yard Services paid $36,800 in interest along with $2,000 in dividends The company issued $3,000 of stock and $16,000 of new debt The company reduced the balance due on its old debt by $18,400 What is the amount of the cash flow to creditors? A B C D E $8,200 $55,200 $2,400 $39,200 $15,800 Cash flow to creditors = $36,800 -16,000 + 18,400 = $39,200 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow to creditors 90 A firm has earnings before interest and taxes of $27,130,net income of $16,220, and taxes of $5,450 for the year While the firm paid out $31,600 to pay off existing debt it then later borrowed $42,000 What is the amount of the cash flow to creditors? A -$14,040 B $0 02-23 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education C -$4,660 D $14,040 E $4,660 Interest = $27,130 -16,220 -5,450 = $5,460 Cash flow to creditors = $5,740 + 31,600-42,000 = -$4,660 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow to creditors 91 A balance sheet shows beginning values of $56,300 for current liabilities and$289,200 for long-term debt The ending values are $61,900 and $318,400, respectively The income statement shows interest paid of $29,700 and dividends of $19,000 What is the amount of the net new borrowing? A B C D E $29,200 $40,450 $34,800 $70,150 $58,900 Net new borrowing = $318,400-289,200 = $29,200 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow to creditors 92 For the past year, LP Gas, Inc., had cash flow from assets of $38,100 of which $21,500 flowed to the firm's stockholders The interest paid was $2,300 What is the amount of the net new borrowing? A B C D E -$14,300 -$9,700 $12,300 $14,300 $18,900 Cash flow to creditors = $38,100 -21,500 = $16,600 Net new borrowing = $2,300 - 16,600 = -$14,300 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow to creditors 93 Six months ago, Benders Gym repurchased $140,000 of its common stock The company pays regular dividends totaling $18,500 per quarter What is the amount of the cash flow to stockholders for the past year if 1,200 new shares were issued and sold for $38 a share? A B C D E -$10,000 -$20,400 $28,500 $74,000 $168,400 Cash flow to stockholders = ($18,500×;4) -[(1,200 ×$38) - $140,000] = $168,400 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze 02-24 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow to stockholders 94 The Underground Cafe has an operating cash flow of $187,000 and a cash flow to creditors of $71,400 for the past year The firm reduced its net working capital by $28,000 and incurred net capital spending of $47,900 What is the amount of the cash flow to stockholders for the last year? A B C D E -$171,500 -$86,700 $21,200 $95,700 $39,700 Cash flow to stockholders = [$187,000 - 47,900 -(-$28,000)]- $71,400 = $95,700 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow to stockholders 95 Donegal’s has compiled the following information: What is the operating cash flow for the year? A B C D E $90,900 $96,700 $114,700 $93,500 $102,600 Operating cash flow = $406,300-218,900-38,600-34,100 = $114,700 AACSB: Analytical Thinking Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Operating cash flow 96 Home Supply, Inc has compiled the following information: 02-25 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education For 2016, the cash flow from assets is _ and the cash flow to stockholders is A B C D E $5,600; $300 $5,600; $15,100 $5,600; $14,500 $6,300; $300 $6,300; $14,500 2016 operating cash flow = $718,900-562,300-42,100-20,200 = $94,300 Change in net working capital = ($9,500 + 59,000 + 128,300 -58,700) - ($18,200 + 54,200 +121,600 42,600) = -$13,300 Net capital spending = $539,700-481,400 + 43,700 = $102,000 Cash flow from assets = $94,300-102,000 -(-$13,300) = $5,600 Cash flow to creditors = $11,400- ($293,500-287,400) = $5,300 Addition to retained earnings = $89,800-65,400 = $24,400 Net income = $718,900-562,300-42,100 -43,700 -11,400 -20,200 = $39,200 Dividends paid = $39,200 - 24,400= $14,800 Cash flow to stockholders = $14,800-($294,500 -280,000) = $300 Cash flow from assets = $5,300 + 300 = $5,600 AACSB: Analytical Thinking Blooms: Analyze Difficulty: Challenge Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flows 97 The Carpentry Shop has sales of $398,600, costs of $254,800, depreciation expense of $26,400, interest expense of $1,600, and a tax rate of 34 percent What is the net income for this firm? A B C D E $61,930 $66,211 $67,516 $76,428 $83,219 Net income = ($398,600 -254,800 -26,400 -1,600) (1 -.34) = $76,428 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement 98 Andersen's Nursery has sales of $318,400, costs of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 35 percent The firm paid out $23,400 in dividends What is the addition to retained earnings? 02-26 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education A B C D E $36,909 $34,645 $44,141 $37,208 $40,615 Addition to retained earnings = [($318,400 -199,400 -28,600 -1,100)(1 -.35)] - $23,400 Addition to retained earnings = $34,645 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-02 Distinguish accounting income from cash flow Section: 2.2 The Income Statement Topic: Income statement 99 Roscoe's fixed assets were purchased three years ago for $1.8 million These assets can be sold to Stewart's today for $1.2 million Roscoe's current balance sheet shows net fixed assets of $960,000, current liabilities of $348,000, and net working capital of $121,000 If all the current assets were liquidated today, the company would receive $518,000 cash The book value of the firm's assets today is _ and the market value is A B C D E $1,081,000; $1,308,000 $1,081,000; $1,718,000 $1,307,000; $1,429,000 $1,429,000; $1,308,000 $1,429,000; $1,718,000 Book value = $121,000 + 348,000 + 960,000 = $1,429,000 Market value = $518,000 + 1,200,000 = $1,718,000 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value Section: 2.1 The Balance Sheet Topic: Market and book values 100 Daniel's Market has sales of $43,800, costs of $40,400, depreciation expense of $2,500, and interest expense of $1,100 If the tax rate is 34 percent, what is the operating cash flow, OCF? Assume tax losses can be carried forward and utilized A B C D E $3,332 $3,279 $3,511 $3,468 $3,013 EBIT = $43,800-40,400 -2,500 = $900 Tax = ($900-1,100) ×.34 = -$68 OCF = $900 + 2,500 -(-$68) = $3,468 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Operating cash flow 101 On December 31, 2015, The Play House had net fixed assets of $812,650 while the December 31, 2016 balance sheet showed net fixed assets of $784,900 Depreciation for 2016 was $84,900 What was the firm's net capital spending for 2016? A $51,600 02-27 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education B C D E $42,410 $57,150 $54,400 $46,620 Net capital spending = $784,900-812,650 + 84,900 = $57,150 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Capital spending 102 Suzette's Market had long-term debt of $638,100 at the beginning of the year compared to $574,600 at year-end If the interest expense was $42,300, what was the firm's cash flow to creditors? A B C D E $21,200 $26,700 $54,900 $102,400 $105,800 Cash flow to creditors = $42,300 - ($574,600 -638,100) = $105,800 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow to creditors 103 Assume a company has sales of $423,800, production costs of $297,400, other expenses of $18,500, depreciation expense of $36,300, interest expense of $2,100, taxes of $23,600, and dividends of $12,000 In addition, you're told that during the year the firm issued $4,500 in new equity and redeemed $6,500 in outstanding long-term debt If net fixed assets increased by $7,400 during the year, what was the addition to net working capital? A B C D E $11,500 $24,500 $15,800 $37,500 $30,400 OCF = $423,800 -297,400 -18,500 -23,600 = $84,300 NCS = $7,400 + 36,300 = $43,700 CFA = CFC + CFS = [$2,100 - (-6,500)] + [$12,000 -4,500] = $16,100 Add to NWC = OCF - NCS - CFA = $84,300 -43,700 -16,100 = $24,500 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Change in net working capital 104 Able Co has $267,000 in taxable income and Bravo Co has $1,600,000 in taxable income Suppose both firms have identified a new project that will increase taxable income by $10,000 The additional project will increase Able Co.'s taxes by _ and Bravo Co.'s taxes by : 02-28 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education A B C D E $1,500; $1,500 $1,500; $3,400 $3,400; $3,900 $3,900; $3,400 $3,400; $3,400 Able Co tax = $10,000 ×39 = $3,900 Bravo Co tax = $10,000×34 = $3,400 AACSB: Analytical Thinking Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-03 Explain the difference between average and marginal tax rates Section: 2.3 Taxes Topic: Taxes 105 Dixie’s sales for the year were $1,678,000 Cost of goods sold, administrative and selling expenses, and depreciation expenses were $1,141,000, $304,000, and $143,000, respectively In addition, the company had an interest expense of $74,000 and a tax rate of 34 percent What is the operating cash flow for the year? A B C D E $227,560 $271,420 $223,330 $285,400 $217,700 EBIT = [($1,678,000 -1,141,000 -304,000 -143,000 = $90,000 Tax = ($90,000 -74,000) ×.34 = $5,440 OCF = $90,000 + 143,000 -5,440 = $227,560 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Operating cash flow 106 For Year 2016, Precision Masters had sales of $42,900, cost of goods sold of $26,800, depreciation expense of $1,900, interest expense of $1,300, and dividends paid of $1,000 At the beginning of the year, net fixed assets were $14,300, current assets were $8,700, and current liabilities were $6,600 At the end of the year, net fixed assets were $13,900, current assets were $9,200, and current liabilities were $7,400 The tax rate was 34 percent What is the cash flow from assets for 2016? A B C D E $9,914 $11,114 $9,360 $10,514  $11,970 EBIT = [($42,900 -26,800-1,900) = $14,200 Taxes = ($14,200 - 1,300)(.34)= $4,386 OCF = $14,200 + 1,900 - 4,386 = $11,714 CFA = $11,714- ($13,900 -14,300 + 1,900) - [($9,200 -7,400) -($8,700 -6,600)] = $10,514 AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate 02-29 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Learning Objective: 02-04 Determine a firm's cash flow from its financial statements Section: 2.4 Cash Flow Topic: Cash flow from assets Chapter 02 Test Bank - Static Summary Category # of Questions AACSB: Analytical Thinking 57 Accessibility: Keyboard Navigation 99 Blooms: Analyze 57 Blooms: Remember 20 Blooms: Understand 29 Difficulty: Basic 66 Difficulty: Intermediate 39 Difficulty3 Challenge Learning Objective: 02-01 Differentiate between accounting value (or "book" value) and market value 39 Learning Objective: 02-02 Distinguish accounting income from cash flow 20 Learning Objective: 02-03 Explain the difference between average and marginal tax rates 11 Learning Objective: 02-04 Determine a firm's cash flow from its financial statements 36 Section: 2.1 The Balance Sheet 39 Section2.2 The Income Statement 20 Section: 2.3 Taxes 11 Section: 2.4 Cash Flow 36 Topic: Balance sheet 21 Topic: Capital spending Topic: Capital structure Topic: Cash flow from assets Topic: Cash flow to creditors Topic: Cash flow to stockholders Topic: Cash flows Topic: Change in net working capital Topic: Free cash flow Topic: Generally Accepted Accounting Principles (GAAP) Topic: Income statement 15 Topic: Liquidity Topic: Market and book values Topic: Net working capital Topic: Noncash items Topic: Operating cash flow Topic: Taxes 11 02-30 Copyright © 2016 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education ... company has sales of $423,800, production costs of $297,400, other expenses of $18,500, depreciation expense of $36,300, interest expense of $2,100, taxes of $23,600, and dividends of $12,000 In... Precision Masters had sales of $42,900, cost of goods sold of $26,800, depreciation expense of $1,900, interest expense of $1,300, and dividends paid of $1,000 At the beginning of the year, net fixed... interest and taxes of $27,130,net income of $16,220, and taxes of $5,450 for the year While the firm paid out $31,600 to pay off existing debt it then later borrowed $42,000 What is the amount of the